Erik Weijers, a year ago

The lightning fast success of Avalanche

Avalanche is a smart contract platform that was launched in September 2020 and has since shot to a top 10 project in terms of total market value. It is one of the most powerful blockchains: huge amounts of transactions can be executed quickly.

Founder Emin Gün Sirer's goal with Avalanche is to build the infrastructure for the internet of assets. To fulfil this great ambition of becoming the "blockchain of blockchains", Avalanche has made it as easy as possible to build custom-made, application-specific blockchains.

The end goal of this aforementioned internet of assets is that all kinds of real-world assets can be traded as tokens. In this way, sending assets should become as easy as sending an email. This will make wealth-building accessible to many more people: not everyone can buy a house, but in the future, everyone should be able to buy fractions of a tokenized house. Recently, Avalanche's focus has been on DeFi (decentralized finance) and NFTs.

The mechanics

Like all new so-called Layer-1s, Avalanche is a proof-of-stake blockchain. Stakers, who guarantee the security of the network, receive about 10% "interest" per year. Avax is the currency needed to conduct transactions. A portion of it is burned during a transaction. Combine this with the limited total amount of Avax that can ever circulate, and one realizes this will in the long run squeeze up the price.

The Avalanche network consists of three blockchains.

  1. The X-chain: if you want to move your Avax between your centralized exchange account and your own Avax wallet, you use the X-chain.
  2. The C-chain: this is the contract chain on which smart contracts can run that are compatible with Ethereum smart contracts. For example, you use this chain when you send Avax from your own Avax wallet to your MetaMask wallet.
  3. The P-chain: the platform blockchain from Avalanche. It coordinates everything related to the validation of transactions, including staking.

The main competition

In terms of its architecture, Avalanche is similar to Polkadot and Cosmos in that Avalanche lets developers of new blockchains benefit from the consensus mechanism (read: security) of the main chain, in this case, Avalanche. But Avalanche can handle more transactions than Polkadot or Cosmos and processes them faster.

At the level of decentralized finance applications, Avalanche competes with blockchains like Binance Smart Chain, Solana and Terra. All these young guns in turn compete for market share with top dog Ethereum. Of the blockchains mentioned, Avalanche is one of the largest in terms of potential transaction volume: the number of transactions that can be processed per second is 4500. Transactions can get through within a second and be irreversible. By comparison, on Ethereum this takes several minutes.

At the moment of writing, Avalanche is the number four blockchain in terms of Total Value Locked (TVL) in Decentralized finance apps. At #1, of course, is Ethereum. Binance Smart Chain, Solana and Terra (Luna) are also regulars in the top 5.

Avalanche's ecosystem

The success of a smart contract platform depends on the number of applications that can use it. Hundreds, in the case of Avalanche. Here are a few of the best known:

  • BenQi: this app is the "Compound of Avalanche": for borrowing, lending and getting interest on your Avax.
  • Trader Joe: a decentralized exchange (dex). What Uniswap is to Ethereum, Trader Joe is to Avalanche. Trader Joe is currently a top 3 dex, right after Uniswap and PancakeSwap.
  • Pangolin: another dex on Avalanche, founded by Ava Labs and with strong community involvement.
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